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What is Ethereum: A Beginner's Guide

By Mohamed Saber Farrag - Mar 10, 3:00 PM

Most people insist that Bitcoin (BTC) is the future of money. If so - what can we say about the next biggest cryptocurrency - Ethereum (ETH)? Most newbies in the cryptocurrency arena ask this question because they need to know where to invest.

It is not fair to compare ETH directly with Bitcoin because it is not fair. They differ markedly in terms of their goals, features, and the technology used to create them.

What is Ethereum (ETH)?

It is a decentralized blockchain network, with a digital token known as Ether. Ether is what experts refer to as the "gas" and it enables transactions, trading cryptocurrencies, storing non fungible tokens (NFTs), playing games, earning interests on holdings, and so much more.

Quick History of Ethereum

Vitalik Buterin co-created Ethereum to compensate for the weaknesses in Bitcoin. There was never the intention to make it the second-largest blockchain. In 2013, Buterin published a white paper explaining "smart contracts" as an automated immutable "if-then" logical statement. Smart contracts enable the development of decentralized applications (DApps). The objective of creating Ethereum was to unify the interaction and running of DApps to make adopting them easier.

How Does Ethereum Work

Ethereum is mainly a decentralized system, running on a single computer called Ethereum Virtual Machine of EVM. It works just like the Bitcoin network, with thousands of computers connected worldwide. It is highly immune to attacks, and a secure system for users. All transactions are stored on the block on the Ethereum blockchain. Mined blocks need to be verified and have a 64-digit code (hash) assigned to them for unique identification. This code serves as the proof-of-work (PoW) for miners. Like Bitcoin, Ethereum is entirely public. Miners broadcast their blocks once completed and a copy of the verified token adds to every digital ledger for every user on the Ethereum network.

Advantages of Ethereum

Some advantages Ethereum users enjoy include:

  • Anonymity and lack of censorship. Ethereum based social media platforms only remove unwanted content based on voting.

  • Community standards prevent bad actors from causing problems.

  • Smart contracts automate many steps, making things much faster and better.

  • Acquiring ETH is easier because companies like Venmo (a PayPal subsidiary and PayPal itself) support purchasing cryptocurrencies using fiat currency.

Disadvantages of Ethereum

The three main issues that need fixing are accessibility, scalability and cost of transactions. First, block validation time and the gas fees hinder transactions. Secondly, Ethereum is too expensive and often poses a challenge for users who are unfamiliar with this technology. The third major issue of concern is that the Ethereum gas fee is quite high.

However, to solve these issues, the Ethereum 2.0 or Eth2 upgrade is coming soon.

If you wish to learn more about Ethereum before investing in it, feel free to contact the Rain support team or read more of our blogs.

Rain is licensed by the Central Bank of Bahrain as a Category 3 Crypto-Asset Services Provider. We are headquartered in the Kingdom of Bahrain

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